Whether your favorite artist is Paul McCartney or Rihanna, we all dream of front row seats and VIP access when they come to town.

With markets unsettled and regulatory changes on the horizon, a backdoor Roth IRA may be an interesting strategy to consider for your retirement nest egg.

A Roth Conversion or backdoor Roth IRA may potentially provide high-net-worth individuals access to the benefits of a Roth IRA even if they wouldn’t normally be eligible.

Let’s explain

A backdoor Roth allows contributions to grow tax deferred. The conversion amount is considered taxable income in the year of the conversion. Qualified withdrawals from the account are tax-free. This can provide significant tax savings over time. Also, unlike traditional IRAs, Roth IRAs do not have required minimum distributions (RMDs) during the account holder’s lifetime. This means that high-net-worth individuals can let their Roth IRA grow tax-free for as long as they would like.

With a Roth IRA, high-net-worth individuals have the flexibility to withdraw funds tax-free in retirement, after age 59 1/2 and after the funds have been in the account for 5 years. This can provide additional financial planning options. Plus, they can be a terrific estate planning tool because they avoid IRD (Income in Respect of Decedent Tax). Income tax-free withdrawals can be appealing to beneficiaries.

Potential Benefits

Low tax rates
With current tax rates at historically low levels, individuals may want to take advantage of this opportunity to convert their traditional IRA funds to a Roth IRA, as they will pay taxes on the conversion amount at the current lower rate.

Market Correction
When values are down, there may be an opportunity to convert IRA dollars to a Roth. The tax will be based on a reduced value and when markets rebound it will occur within a Roth IRA.

Potential for future tax increases
There is always the possibility that tax rates may increase in the future, and a backdoor Roth IRA conversion can lock in current low tax rates.

Long-term retirement and estate planning
A backdoor Roth IRA can be a valuable tool for long-term planning. Growth will occur tax-deferred, and all distributions may be tax-free to the account owner, as well as beneficiaries.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

So, how do you get started?

If you would like more details, simply click reply to this email because your retirement plan deserves VIP access.

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